Let me try out a few ideas on you guys. It seems we have a wide range of thoughts and interests, but lots of industry smarts.
It seems apparent Tellier’s departure was due to differences in the direction of the company, and one can only assume the CSeries was a part of the problem. A number of writers in today's press reports surmised it was a difference in how to proceed with the project. Perhaps these were some of the issues Tellier was concerned about:
· Bombardier has never developed a new airplane from a clean sheet of paper. They have either inherited or stretched existing designs. Anyone in the business knows new development is a daunting task, and cost-inceases/delays are commonplace - especially if you developing new technology. Even thought Bombardier is a top aerospace company, they have little experience in Montreal in new aircraft design, and particularly in new technology development.
· The new project is touted to offer 20 percent savings in operating costs, but given the state of technology, this is going to be, well, hard to achieve. If it were that easy, I think others would have done it by now. It requires a much more efficient power plant and that would require a massive investment from an engine maker. I haven’t seen GE
, or even fellow-Canadian PWC jumping up and down to do that. As for cost savings in fuselage design, it would take lots of very bright engineers to make this happen, and . . .
· The competition for very bright engineers is fierce. Boeing, Airbus, EADS, Lockheed Martin, Northrop Grumman . . . these are just a few of the companies paying big bucks for talented engineers and for projects a lot more exciting than a new airliner. Given a choice of work environments, it may be easier to choose a stable, high-tech mega-company over a position where the future is a bit in doubt. That doesn’t even address salary – and which company might be in a better position to pay more, or offer more career choices.
· The new product will be 5-6 years to market, and the market niche targeted here is not huge. Recent figures (US DOT/Back Aviation) suggest that, over the past three years, 61 percent of all flights in the US depart with pax loads best suited for 70-110 seat aircraft, while 17 percent have loads for a 110-135 seat aircraft. For a carrier to maintain frequency and a decent load factor, larger aircraft may not be the way to go.
· And there’s the two giants - Boeing and Airbus. As all might agree, they aren’t going to concede this segment of the market. Add in the top range of the Embraer product line, and there are three established product lines they will be up against. While this has no bearing on a new entrant five years down the road, it is interesting to note that both the JetBlue and Air Canada competitions pitted all four companies against each other. Bombardier will not find it easy in this area.
· The best indicator of what the market wants is to see what the market will pay for. Where there is a clear requirement, you will find support for development funding by market groups – financiers, shareholders, suppliers, and partners. This was the case with the new Embraer family - the $1 billion cost picked up by the shareholders, a public offering, and risk-sharing partners (along with normal cash flow from ERJ sales). But when governments step in to fund development, market requirements are skewed. If there really is no market, government funding for political reasons will result in a white elephant – with taxpayers left to clean up after the beast.
· And finally, never mind the question of whether the Canadian taxpayer should put his or her tax dollars on the line – R&D support in this instance is probably contrary to WTO regulations and this would most likely trigger a protest by Brazil. Since Jan 1, 2000, government funding of R&D, according to the WTO, could result in “adverse effects” to a competitor and would be actionable under current regulations. Since there is no bi-lateral agreement on this matter between Canada and Brazil to supersede the WTO (such as the now-defunct 1992 accord for large jets), Brazil would probably bring an action – which would at the very least cost millions of dollars in legal fees, and at the most, tens or hundreds of millions of dollars in possible trade sanctions.
The bottom line is that this is a project fraught with risk. The market is questionable, the funding poses a major problem, the competition is formidable, and the technical challenge is enormous. One article in the Canadian press today quoted Richard Aboulafia of the Teal Group saying that, given their economic predicament, if they proceed with the project, it will “result in a bloodbath.”
The company seems to be paying the price for abandoning the BRJ-X. Some people reported seeing Bombardier engineers leaving the facility at Oberpfaffenhofen with boxes of drawings following their “evaluation” of the 728, and that might give them a leg up, but they still have a problem, it seems to me, and perhaps Tellier was ousted because he brought up issues such as this instead of moving as fast as a locomotive with the new project.
So what do you think?